Yale School of Management

Audio: James McGregor Describes Doing Business in China in Talk at SOM

James L. McGregor could sense something about China as he backpacked through the country in 1985. What he noticed as he interacted with people in what was then a closed, communist society was a pent-up energy waiting to be released. “I decided it would be the most dynamic country of my lifetime,” he said.

McGregor has spent much of his time since then living and working in China. Speaking before the SOM Greater China Club on January 23, 2008, he detailed his experience first as an observer of the transformation of the country and then as a participant, as he moved from journalist to venture capitalist and finally advisor to foreign investors. Two years ago, he published his account of the emerging superpower in One Billion Customers. “China is all about business,” he said. “It’s simultaneously the world’s largest start-up and the world’s largest turnaround. It’s a great country coming out of a 200-year slump.”

McGregor moved first to Taiwan in 1987 and then Beijing in 1990, as the China bureau chief of the Wall Street Journal. This was not long after Tiananmen Square and the country had closed itself to outsiders once again. But under Deng Xiaoping, China began a rapid transformation, unleashing the dynamism McGregor had noticed years earlier. As he sees it, China was ready to embrace a more capitalistic view of its economy. Communism, he said, took over China only as a quirk of history. “There’s no leading ideology in the country other than getting rich,” he said.

After ten years writing for the Wall Street Journal and managing its parent company’s China operation, McGregor moved over to a VC firm investing in the country and then launched his own firm, JL McGregor & Company, which advises clients on the Chinese market. In his opinion, the Chinese are natural entrepreneurs. But, he added, the country has yet to develop a management culture adequate for China to take the step from a rapidly developing economy to a fully developed one. “Management is China’s Achilles heel,” he said, explaining that Chinese education produces great employees but poor leaders, emphasizing memorization over strategy; that managers tend to surround themselves with like-minded and sycophantic subordinates; and that Chinese society downplays team-work.

McGregor emphasized that a key to being successful in China is to understand the bedrock differences between its culture and others. For example, he said that unlike the United States and other countries with a real religious core, China’s society isn’t guilt-based, where stability is achieved through the overriding emphasis of self-control and a deep inner sense of right and wrong. Instead, he sees China as shame-based, where the deterrence is based not on an internal sense of right or wrong but a desire not to get caught, since the family of the offender is shamed by the society at large. The upshot, he said, is that laws are only as strong as their enforcement. “Go to any intersection in China. Nobody will ever follow a traffic rule unless there’s a cop standing right there,” he said. “The same applies for business.”

Going forward, he said that how the government deals with the fallout of rapid growth will help determine the country’s ability to move ahead in a stable fashion. Massive migration from country to city, a widening gap between rich and poor, and the poisoning of much of China’s environment all threaten the country’s stability. McGregor said this explains why the government has taken a harder line recently on protesters and dissidents. “They’re trying to hold the place together as long as they can and as tightly as they can to get it as prosperous as they can before the lid comes off and pluralism kicks in,” he said, adding that he has faith the Chinese will find ways to profit from the most pressing challenges. “Take pollution, for instance. People are just fed up with pollution. I’m sure China will find a business opportunity there. In ten years the country will be the world’s leader in alternative energy.”

Listen to James McGregor discuss his personal and professional experiences in China.